On March 30, 2018, FERC issued an order establishing a technical conference and partially granting one of two complaints against various changes to the PJM Interconnection, L.L.C. (“PJM”) frequency regulation market. In partially granting one complaint, FERC found that PJM’s tariff is unjust and unreasonable in so far as it omits the methodology for calculating certain regulation-related cost curves, as well as the parameters governing certain regulation market signals. In the forthcoming technical conference, FERC intends to consider both: (1) whether PJM’s recent frequency regulation market changes hamper the full participation of storage resources, for example, to provide regulation services, and (2) whether PJM’s regulation market design as a whole is consistent with prior FERC precedent.

In May 2015, PJM instituted two types of regulation signals in its regulation market as part of a suite of changes made in compliance with FERC’s Order No. 755 regarding frequency regulation compensation. The first such signal, “RegA,” is used to dispatch slower, sustained-output resources such as steam and combustion generators. The second signal, “RegD,” is a faster signal, intended to dispatch quick-ramping, dynamic resources, such as battery storage. As part of the market-clearing process, PJM’s business practice manual—but not its tariff—set out a “benefits factor” curve to reflect the relationship between RegA and RegD signals and consider them on a comparable basis.

According to PJM, after implementing these initial changes, the Regional Transmission Operator began to experience operational challenges when high numbers of RegD resources were providing regulation services. n response, PJM instituted two modifications in December 2015. First, PJM modified the “benefits factor” curve so that RegD resources would constitute no more than 40 percent of the resources necessary to meet PJM’s regulation requirement at any time. Second, PJM also instituted a cap on RegD resources during the morning and evening “excursion” hours to no more than 26.2 percent of PJM’s regulation procurement requirement. In January 2017, PJM further altered the design of its RegA and RegD signals to institute a “conditional neutrality,” whereby PJM would prioritize system management, and neutrality for energy limited resources like storage resources would be facilitated when system conditions permit.

On April 13, 2017, the Energy Storage Association (“ESA”) filed a complaint against PJM’s December 2015 and January 2017 regulation market changes. The next day, Renewable Energy Systems Americans (“RESA”) and Invenergy Storage Development, LLC (“Invenergy”) (together, “RESA/Invenergy”) also filed a complaint against the January 2017 changes. According to ESA, PJM lacked authority to implement both the December 2015 and January 2017 changes without first filing tariff revisions at FERC. Additionally, ESA argued that PJM should be required to include “benefits factor” curve methodology in its tariff, rather than only it business practice manual. With regard to the January 2017 changes, both ESA and RESA/Invenergy argued that the changes were unjust and unreasonable due to their significant and negative impact on RegD resources.

In response, PJM characterized the complaints as seeking “revenue certainty” at the expense of necessary operational changes. PJM also asserted that it was not impermissible to include the necessary calculations in its business practice manuals and that being forced to file tariff revisions prior to such changes would result in unnecessarily long delays.

In its order, FERC partially granted ESA’s complaint upon finding that the PJM tariff was unjust and unreasonable for not including the “benefits factor” methodology nor the parameters governing the RegD signal. As FERC explained, under its “rule of reason” policy, such provisions should have been included in PJM’s tariff because, among other things, they “significantly affect rates, terms and conditions, of service.”

As for the remaining issues, FERC established April 13, 2017 and April 14, 2017 refund effective dates for the ESA and RESA/Invenergy complaints, respectively, and directed staff to hold a technical conference concerning those issues. Specifically, FERC directed staff to consider whether PJM’s frequency regulation market design hampers the full participation of RegD resources and whether the design as a whole complies with Order No. 755.

As of this writing, no date has been established for the technical conference.

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